2012 in Review: Looking Back at the Fitness Industry

Flip through the pages of the 2012 calendar, and on any given day, it appeared that some big announcement was made about an acquisition or merger in the fitness industry. That, perhaps, was the biggest trend of the year.

LA Fitness, Irvine, CA, picked up where it left off in 2011 after acquiring 171 clubs from Bally Total Fitness, Chicago. It made two acquisitions in 2012, obtaining the remainder of the 32 clubs from Lifestyle Family Fitness, St. Petersburg, FL, and all 36 clubs from Urban Active, Lexington, KY.

"This was a year of lots of sales but limited consolidation," says Rick Caro, president of New York-based Management Vision Inc., a fitness club consulting company.

True, 32 clubs here, 36 there, one here, 11 there, and so on may add up, but no mega deals occurred such as the aforementioned LA Fitness-Bally deal last year.

"Consolidation involves probably less than 1 percent of the overall number of commercial clubs in the U.S.," Caro says. "Therefore, despite the fact that everyone has heard from financial people for years and years that this industry is ripe for consolidation, we're still not having a lot of consolidation. I don't think that even 300 clubs will be involved in the total number of transactions this year."

Private equity firms continued to show interest in the industry, most recently with the announced deal by Planet Fitness, Newington, NH, which sold a majority share to TSG Consumer Partners, San Francisco. Curves International, Waco, TX, finalized a deal with North Castle Partners, Greenwich, CT.

Sales and impending sales, such as the one involving 24 Hour Fitness, San Ramon, CA, which might not be announced until sometime in 2013, dominated the headlines in 2012. But other important stories—some not involving acquisitions—occurred throughout the calendar year, including the passing of some key figures in the industry.

January

The LA Fitness acquisition of Bally Total Fitness in November 2011 was not without its problems. Former Bally members filed class-action lawsuits in January against both Bally and LA Fitness. The members claimed that LA Fitness violated their membership contracts after the acquisition. Plaintiffs in another case claimed that LA Fitness and Bally violated consumer fraud and deceptive business practices acts, adding LA Fitness was not honoring lifetime memberships from Bally.

Between November 2011 and January 2012, the fitness industry lost three pioneers. Jimmie Payne, who was a club operator and equipment designer as well as a former Mr. America and a contemporary and friend of Jack LaLanne's, died at the age of 85. Payne's death came a few weeks after the industry lost longtime fitness advocate and former club owner Bob Delmonteque, who also died at the age of 85, and Bonnie Prudden, who inspired the creation of the President's Council on Physical Fitness, Sports and Nutrition. Prudden was 97.

February

Mark Mastrov, co-founder and chairman of New Evolution Ventures (NeV), Lafayette, CA, formed a partnership with the brother tandem of Kirk and John Galiani in February. The partnership, US Fitness, includes the Galianis' Onelife Fitness clubs based in Norfolk, VA, Crunch Fitness clubs in Washington, DC, and other new facilities in various stages of development. In addition, the Galianis joined the NeV board of directors.

Gold's Gym announced its acquisition of 11 Spectrum Athletic Clubs in Texas. Spectrum kept its 12 clubs in Southern California. With that acquisition, Gold's increased the number of clubs it operates in San Antonio from nine to 20. Gold's also announced plans to relocate and consolidate its headquarters from Irving, TX, to Dallas in 2013.

Beachbody LLC, Santa Monica, CA, which created the P90X home-exercise program, began to offer P90X certification in the commercial market to trainers as well as free licensing of the programs to facility owners. By getting P90X training, personal trainers also could earn continuing education units through the National Academy of Sports Medicine, which has a partnership with Beachbody.

Mad Dogg Athletics Inc., Venice, CA, and Zumba Fitness LLC, Hallandale, FL, announced that they filed lawsuits against Spinning Racing Bike and Dance in Tamaulipas, Mexico, claiming the company was counterfeiting their brands offered under their Spinning and Zumba trademarks, respectively.

April

Bally announced it had entered into an agreement with Blast Fitness, a club chain that offers memberships as low as $10 a month, for the sale of 39 clubs. In the deal, which was finalized in May, Blast acquired Bally clubs in Boston (three); Buffalo, NY (one); Charlotte, NC (two); Fresno, CA (five); Milwaukee (four); Providence, RI (one); and St. Louis (two), plus three in Connecticut and all 18 in Texas, consisting of nine in Houston, five in Dallas-Fort Worth and four in San Antonio.

A memorial service was held for Dan Block, former president at Flex Equipment Co. and Intek Strength. Block died in March at the age of 58. Representatives from World Gym, Gold's Gym, LA Fitness, Life Fitness, U-Max, Star Trac, Iron Grip and Matrix attended the service.

Gold's Gyms franchisees left the brand as Vertical Fitness Group, Appleton, WI, converted 11 Gold's Gyms in Wisconsin and Minnesota to a new brand called Xperience Fitness. Vertical Fitness Group also reached agreements to convert four Milwaukee-area Cardinal Fitness gyms to the Xperience Fitness brand. On the West Coast, the lease for the "Mecca" of Gold's Gyms in Venice, CA, was acquired by Internet search engine giant Google, but Gold's Gym said the club would remain on that site.

Michael Bruno, the owner and CEO of Land America Health and Fitness Co., which operates Star Trac, StairMaster and Schwinn, announced he was preparing to take the company public in China with an initial public offering (IPO). The earliest that Land America can make an IPO in China is 2014 because a company must show three consecutive years of profitability before making an IPO there, Bruno said.

News of Life Time's plans to open clubs in New York and California began to surface. The Orange County Register reported that a planning commission in Laguna Niguel, CA, had approved construction of a 128,000-square-foot Life Time club in a vacant site that was once home to the city's expo center. It would be the company's first club in the state of California. In Harrison, NY, Life Time said construction of a new club there would not be affected by the discovery of contamination on the property of the proposed $40 million project.

Chuck Runyon and Dave Mortensen, co-founders of Anytime Fitness, Hastings, MN, appeared on an episode of ABC's "Secret Millionaire." Runyon and Mortensen spent a week volunteering at local organizations in Oklahoma City, then surprised their colleagues with significant donations, including an Anytime Fitness franchise. The show aired one month after one Anytime Fitness franchisee in South Carolina donated a kidney to one of her club's members.

The Fitness Industry Technology Council (FIT-C) gained new leadership as Bryan O'Rourke, industry consultant and CEO of Integerus, took over as president. The council is comprised of organizations and professionals within the fitness industry who seek to develop standards around the measurement and transport of fitness performance data, such as calorie expenditure. The standards would apply to treadmills, ellipticals and stationary bikes, among other equipment.

July

24 Hour Fitness was in the spotlight both with its sponsorship of the U.S. Olympic Team at the Summer Olympics in London and with news that its parent company, Forstmann Little, New York, was actively seeking bidders for a sale. One report in The New York Times said that 24 Hour could fetch about $2 billion. The same report said that LA Fitness and Life Time Fitness were possible suitors, but both companies denied that claim. Throughout the process, the 24 Hour board strengthened its executive team, adding the president's title to CEO Carl Liebert and making other promotions.

John Urmston, a former executive at Nautilus and the Sports and Fitness Insurance Corp., died at the age of 66 after a battle with Parkinson's disease. William Staub, who developed the treadmill for use in homes and fitness clubs, died at the age of 96.

August

Equinox, New York, hired one of the first female presidents in the industry, Sarah Robb O'Hagan, from PepsiCo.'s Gatorade division. Robb O'Hagan not only will oversee more than 50 Equinox clubs but also the company's Blink Fitness, SoulCycle and Pure Yoga brands. Equinox opened its first club in London later in the year and announced plans to open its first Canadian clubs in Toronto.

Planet Fitness reached a settlement with its franchisee partners in PFNY LLC. Mike and Marc Grondahl and Chris Rondeau, the owners of Planet Fitness, filed a lawsuit in December 2011 against PFNY owners Jeff Innocenti, James Innocenti and Gino LaVerghetta, claiming the franchisees conducted business with real-estate companies and a contractor without their knowledge. The Innocentis and LaVerghetta denied the allegations and filed a countersuit in January.

Curves finalized its agreement with North Castle Partners. Curves CEO Gary Heavin had acknowledged in July that the two sides were close to a deal. Heavin and his wife, Diane, moved out of the day-to-day operations of Curves. North Castle, which had invested in Equinox from 1999 to 2005, said it would appoint a new CEO for Curves.

Johnson Health Tech, the Cottage Grove, WI-based parent company of fitness brands Matrix, Vision, AFG and Horizon, acquired Magnum Fitness, South Milwaukee, WI, a developer of commercial strength training products for more than 30 years.

September

LA Fitness made its second major acquisition deal of the year and third in 12 months when it announced it had entered into an agreement to purchase the assets of Urban Active, which had 36 clubs, most of which were in Ohio and Kentucky. The deal was finalized in October. The two parties had been negotiating for months and almost consummated a deal in 2011. The addition of the Urban Active clubs, most of which had been Gold's Gyms under the direction of franchisee Royce Pulliam, brought LA Fitness' club total to 551.

Two Gold's Gyms franchisees broke away from the brand in September as Sebastyen and Zsolt Jackovics rebranded their four San Francisco Bay Area Gold's Gyms to Fitness SF. The move came two years after Robert Rowling, the CEO of TRT Holdings, the parent company of Gold's Gym International, made a $2 million contribution to a political group that supported candidates who hold anti-gay positions.

Bally made a major change on its executive team, hiring Town Sports International (TSI) founder and former Crunch CEO Marc Tascher as its CEO. Tascher replaced Mike Sheehan, who had come to Bally from 24 Hour Fitness in 2008. Tascher is responsible for overseeing all of Bally's operations, including its strategy, direction, growth and long-term planning.

Technogym opened its new Italian headquarters in Cesena, Italy. The opening was attended by Italian President Giorgio Napolitano and Nerio Alessandri, founder of Technogym. President Bill Clinton spoke at the inaugural Wellness Congress, which was put on the same day by Technogym. Earlier in the year, Technogym had served as a sponsor of the London Olympics.

The U.S. Army, which was scheduled to implement a new physical fitness test, announced in September that it was putting those plans on hold. Army officials said the test failed to measure functional fitness that would prepare soldiers in combat. Last year, the Army began piloting two new tests, the Army Physical Readiness Test (APRT) and the Army Combat Readiness Test (ACRT) to help soldiers be more prepared for combat. Later in the year, a report detailed the dramatic rise of discharges of active-duty airmen in the Air Force for not meeting physical training standards.

October

Hurricane Sandy ripped through the East Coast, and fitness clubs were not immune to her wrath, closing many clubs. Some New York-area clubs remained closed into November. Eric Casaburi, CEO of RetroFitness, was featured in Entrepreneur and Forbes magazines, describing how he had purchased a backup generator for the corporate office in Colts Neck, NJ, and made other preventative measures. Several clubs, including New York-based TSI's New York Sports Clubs and HealthQuest Fitness, Hunterdon, NJ, opened their doors to the community, offering hot showers and a chance for people to charge batteries for their phones or laptops. Equinox also opened its doors to members and guests for showers, but overcrowding forced the company to allow only members.

24 Hour was once again in the national spotlight for two big stories in October. First, 24 Hour was one of a number of sponsors of Lance Armstrong who cut ties with the cyclist after he was stripped of his seven Tour de France titles and banned from professional cycling. The steps were taken after a report by the U.S. Anti-Doping Agency alleged widespread doping through banned drugs and blood transfusions by Armstrong and his cycling teams. 24 Hour took down Armstrong's name and interior photos from six signature clubs—three in his hometown of Austin, TX, plus one each in Round Rock, TX; Tualatin, OR; and Denver.

Chris A. Davis, who left 24 Hour in March after serving as chairman of the board of directors, sued the company in October for at least $23.6 million, claiming 24 Hour breached its contract in connection with a phantom stock agreement. 24 Hour told Davis in writing that the phantom stock agreement was "not a valid obligation of the company." Davis later made a written demand for payment, which her attorneys claimed 24 Hour had not paid.

At least four law firms were looking at whether they would file lawsuits related to any possible breaches of fiduciary duties and whether the acquisition was purposely timed to take advantage of what the firms called a temporary drop in the share price of Cybex. One of those firms has now gone ahead with a lawsuit. The company continued its support of breast cancer research, as the YMCA of Middle Tennessee purchased a company-record 57 pink treadmills used by participants in the Y's After Breast Cancer program. Cybex supports breast cancer research annually through its Pink Ribbon Run.

Before the show, the industry lost Scott Dennis, who was the president and owner of Fitness Resource Group. Dennis had also worked in sales for Precor and Cybex. He was 42.

November

Mike Grondahl told Club Industry that Planet Fitness had completed an equity deal with TSG Consumer Partners for an undisclosed sum. Grondahl, his brother, Marc, and Chris Rondeau will retain a 25 percent ownership stake in the company.

CrossFit founder Greg Glassman took over 100 percent of the Washington, DC-based company after he bought the 50 percent share from his wife, Lauren Glassman, whom he is divorcing. Lauren Glassman had negotiated but not finalized a deal with private equity firm Anthos Capital to sell her share of the company for $20 million. Greg Glassman received a loan from venture capital firm Summit Partners, Boston, for the $16.09 million needed to purchase the share.

The Virginia Supreme Court delayed a decision until January 2013 in the case of a proposed YMCA that has been challenged by for-profit club operators. The Charlottesville Area Fitness Club Operators Association, which includes ACAC Fitness and Wellness Centers and Gold's Gym, filed suit against the city of Charlottesville, VA, and Albemarle County, VA, in May 2010. The group claims that the city and county violated the Virginia Public Procurement Act, which requires the government to seek bids on projects. Instead, Albemarle County and the city of Charlottesville donated $2.03 million and $1.25 million, respectively, to the Piedmont Family YMCA, Charlottesville, to build a Y in a city park. The Charlottesville business group contends neither the city nor the county allowed bids from private clubs.